QuickLogic Corporation — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 28, 2020; comparison periods ended June 30, 2019. Amounts are in U.S. dollars unless stated otherwise. QuickLogic develops low-power semiconductor platforms, eFPGA intellectual property and sensor-processing software, including SensiML’s AI toolkit.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $2.196 million | $2.087 million | $4.354 million | $5.281 million |
| Gross profit / margin | $1.004 million / 46% | $1.022 million / 49% | $2.119 million / 49% | $3.001 million / 57% |
| Operating expenses | $3.899 million | $5.555 million | $8.076 million | $11.243 million |
| Operating loss | $2.895 million | $4.533 million | $5.957 million | $8.242 million |
| Net loss | $2.979 million | $4.634 million | $6.144 million | $8.110 million |
| Basic and diluted loss per share | $0.35 | $0.65 | $0.73 | $1.16 |
Q2 revenue increased 5% year over year; new-product revenue rose 15% to $820,000, while mature-product revenue was flat at $1.376 million. First-half revenue declined 18%, with new products down 7% and mature products down 22%. Management attributed the first-half mature-product decline primarily to lower orders from aerospace, military and industrial customers. Gross margin declined, which management attributed mainly to product mix and, for the first half, additional testing costs for shipments to a major smartphone customer.
Operating expenses fell 30% in Q2 and 28% in the first half year over year. Lower compensation and travel costs, the January restructuring and reduced facility-related costs contributed. First-half results included $513,000 of restructuring charges, primarily severance; the company said all amounts were paid by June 28.
- Cash flow: First-half operating cash use was $3.578 million, versus $5.970 million a year earlier. Investing cash use was $436,000; financing provided $8.864 million. Cash, cash equivalents and restricted cash increased to $26.398 million from $21.548 million at fiscal year-end.
- Liquidity and debt: At June 28, cash and restricted cash included $15.0 million drawn on a $15.0 million revolving facility. The company also had approximately $1.2 million of PPP borrowing and $712,000 of finance-lease obligations. Current liabilities were $18.803 million and current assets $31.736 million.
- Equity financing: A June public offering of 2.5 million shares generated approximately $7.9 million net proceeds. The underwriter later exercised part of its option, adding approximately $461,000 net proceeds on July 21. Shares issued and outstanding were 10.912 million at quarter-end; 11.055 million were reported outstanding as of July 31.
Management outlook, risks and notable items
- Management said existing cash, financing resources and the June/July equity proceeds were expected to fund operations and capital expenditures for the next 12 months. It also cited the need to renew or replace the revolving facility, which matures in September 2021. The filing provides no numerical revenue or earnings guidance.
- The filing says the $15.0 million revolving balance was repaid after quarter-end, but gives inconsistent timing: Note 7 states June 29, while MD&A states July. Verify the repayment date and subsequent liquidity position.
- Management expected COVID-19 to adversely affect Q3 2020 revenue and results, and possibly later periods. Risks included supply-chain and logistics disruption, delays in customer deployments, and weaker demand. At filing time, the company reported operational challenges but no material impact on its ability to fulfill demand to date.
- The company obtained a $1.192 million PPP loan at 1% interest, with potential full or partial forgiveness subject to program requirements. It elected the 24-week spending period and intended to apply for forgiveness; forgiveness was not assured.
- Revenue was concentrated: in Q2, two distributors each represented 25% and 29% of revenue, and one customer represented 29%. Japan accounted for 35% of revenue. The company also depends on limited or single-source suppliers and contract manufacturers.
- No litigation was reported. The company maintained a full valuation allowance against U.S. and certain foreign deferred tax assets. Management reported disclosure controls effective at a reasonable-assurance level and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the date and cash impact of repayment of the revolving credit facility, and the company’s cash and debt position after quarter-end.
- Track COVID-19 effects on Q3 revenue, customer deployments, demand and contract-manufacturer supply.
- Monitor PPP loan forgiveness status and any repayment obligations.
- Assess whether new-product growth can offset declining mature-product sales and compressed gross margins.
- Review customer, distributor and supplier concentration, along with the revolving facility’s September 2021 maturity and renewal or replacement plans.